Monday, August 27, 2012

Mergers Help Companies 'Cope' With Smaller Profits, Compliance Costs

Two mergers announced last week suggest that the health care industry is "increasingly turning to consolidation as a way to cope with smaller profit margins and higher compliance costs that many anticipate" when reforms under the Affordable Care Act take effect, says a Washington Post article.

Both acquisitions will affect the Washington, DC, area. On August 20, Aetna announced it will buy Maryland-based Coventry Health Care, which provides Medicare and Medicaid services, for $5.7 billion. Two days later, Health Care REIT announced an $845 million deal to acquire Sunrise Senior Living, which is based in McLean, Virginia. Sunrise manages 300 senior living facilities in the United States, Canada, and the United Kingdom, including 25 in the Washington region.

The Coventry deal will add 5 million members to Aetna's existing pool of 36.7 million enrollees. The merger will help Aetna reduce overhead costs and boost Coventry's ability to market to more consumers on state-run health insurance exchanges, the article says.

Aetna's planned purchase of Coventry follows similar announcements of large acquisitions. In October 2011, Cigna reached an agreement to acquire HealthSpring. Last month, WellPoint announced plans to acquire Amerigroup.

Because a real estate investment trust such as Health Care REIT cannot both own and operate its real estate, Sunrise will likely continue to be run independently.

Still, many health care experts predict nursing homes, senior communities, and other long-term care facilities will follow a similar path of consolidation because small and mid-size operators will struggle to afford compliance costs, the Post says.